HECM Helps Solve a Social Need says Former FHA Commissioner

Former Federal Housing Administration Commissioner Brian Montgomery has become very vocal about why the Home Equity Conversion Mortgage (HECM) needs support from members of congress and it continues in the West Side Ledger.

As the reverse mortgage industry faces a reported $250 million shortfall for the HECM program in FY 2011, Montgomery tells WSL the product helps solve a social need for seniors in the country.

While Montgomery describes the $250 million as a “rounding error in the federal budget,” it has become more complicated as the reports of unscrupulous lenders have been published by the media and a call by some legislators to keep reverse mortgages from becoming the next sub-prime debacle.  All of these factors make it a pivotal year for the program said Montgomery

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“Seniors look at all these layers that start with the bad press and become reluctant about participating,” he said.  “Of course, you’ve got a few members of Congress who now think they can save seniors from all that’s bad in the world and seniors read about that. Well, there just happens to be bad attorneys, veterinarians — even umpires. But we’re investigating HECMs? Give me a break …”

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  • GeorgeM,rnrnYour arguments might have been reasonable 19 months ago but they are now very dated. They stem from a misunderstanding about the budget and what the HECM subsidy request represents. 19 months similar arguments and questions were raised by several industry leaders here on RMD. To help explain the situation, the $250 subsidy is properly called a positive credit subsidy.rnrnApproximately 90% of all HECMs are outstanding. Are there sufficient cumulative net revenues to pay for future losses on all of these HECMs? What about the net costs to HUD for carrying assigned HECMs? If the interest costs to carry assigned HECMs are accruing interest at 5% but are earning less than 2%, that loss is real but generally is not discussed. Then there are the allocated costs of running the HECM program such as salaries and other HUD costs.rnrnLast year the HECM actuarial report showed that the ACTUARIES were projecting that the HECM loans outstanding would eventually result in an overall profit. Individuals in HUD who deal with this are now stating that with the continuing slide in home values they are expecting the report this year to be less positive. But that is the actuarial report which is nothing more than projections (based on what the actuaries consider reasonable assumptions) regarding the pool of HECMs outstanding as of the year end of the fiscal year being reported on.rnrnThe $250 million in question has absolutely nothing to do with HECMs currently outstanding or the HECMs which will be endorsed in the next 13 calendar days. It is the projected net negative cash flow that the White House Office of Management and Budget (u201cOMBu201d) determined will result from those HECMs which will be endorsed in the new fiscal year which starts in less than 2 weeks based on several significant assumptions. rnrnOne of those assumptions is the PLF tables which will be used next year. Another is the number of HECMs which will be endorsed in that fiscal year. Yet another is the MIP rates. And probably the most important of all is the estimated home appreciation rate which is used in these computations; if it were 10%, no subsidy would be required.rnrnIt is OMB which has determined the $250 million. Some believe that if the MIP rates and PLFs which applied to HECMs endorsed on 9/30/2009 were reflected in the current subsidy computation, the positive credit subsidy would be $1.7 billion. Why it is only $250 million is because the PLFs are lower by 11%-15% and the annual rate of ongoing MIP is 1.25% rather than 0.5%rnrnAre the assumptions reflected in the OMB calculation reasonable? Since the assumptions are not provided, it is hard to say. Certainly no one expects endorsements to reach 130,000 except for the OMB assumptions. But the most significant factor, the projected home appreciation rate, seems much lower than even the miserable rate used last year in the computation.rnrnThere is much more to say but due to space limitations, this is more than enough. rn

  • I heard this morning on CNBC that our president is a millionaire. Maybe his secure future financial position blinds him to the seniors who have financial setbacks and suddenly find themselves with devalued 401ks, equity loss, and stock portfolios plummeting. Unlike Pres. Obama, they do not have the time or physical stamina to rebuild for their futures. And the supposedly caring Congress and President are knocking away some basic props from under them. Brian Montgomery is right. This is a pivotal year for reverse mortgages, just as it is pivotal for the senior population in general. The question is (and I think we in a senior sensitive industry already know) which way is the year pivoting?

  • I have a difficult time understanding how a program that has been collecting a 2% upfront MIP and a .5% MIP over the last 20 years with a government stated loss rate of less than .5% can be running a $250 million shortfall. Is it because we are matching todays revenues (current MIP’s) with today’s outflows? Is this really appropriate? While I realize it is typical government practice (ie; our failing Social Security system), is it fair to further curtail benefits to our seniors due to the shortsightedness of our elected officials and highly paid government administrators and regulators?

  • GeorgeM,rnrnYour arguments might have been reasonable 19 months ago but they are now very dated. They stem from a misunderstanding about the budget and what the HECM subsidy request represents. 19 months similar arguments and questions were raised by several industry leaders here on RMD. To help explain the situation, the $250 subsidy is properly called a positive credit subsidy.rnrnApproximately 90% of all HECMs are outstanding. Are there sufficient cumulative net revenues to pay for future losses on all of these HECMs? What about the net costs to HUD for carrying assigned HECMs? If the interest costs to carry assigned HECMs are accruing interest at 5% but are earning less than 2%, that loss is real but generally is not discussed. Then there are the allocated costs of running the HECM program such as salaries and other HUD costs.rnrnLast year the HECM actuarial report showed that the ACTUARIES were projecting that the HECM loans outstanding would eventually result in an overall profit. Individuals in HUD who deal with this are now stating that with the continuing slide in home values they are expecting the report this year to be less positive. But that is the actuarial report which is nothing more than projections (based on what the actuaries consider reasonable assumptions) regarding the pool of HECMs outstanding as of the year end of the fiscal year being reported on.rnrnThe $250 million in question has absolutely nothing to do with HECMs currently outstanding or the HECMs which will be endorsed in the next 13 calendar days. It is the projected net negative cash flow that the White House Office of Management and Budget (u201cOMBu201d) determined will result from those HECMs which will be endorsed in the new fiscal year which starts in less than 2 weeks based on several significant assumptions. rnrnOne of those assumptions is the PLF tables which will be used next year. Another is the number of HECMs which will be endorsed in that fiscal year. Yet another is the MIP rates. And probably the most important of all is the estimated home appreciation rate which is used in these computations; if it were 10%, no subsidy would be required.rnrnIt is OMB which has determined the $250 million. Some believe that if the MIP rates and PLFs which applied to HECMs endorsed on 9/30/2009 were reflected in the current subsidy computation, the positive credit subsidy would be $1.7 billion. Why it is only $250 million is because the PLFs are lower by 11%-15% and the annual rate of ongoing MIP is 1.25% rather than 0.5%rnrnAre the assumptions reflected in the OMB calculation reasonable? Since the assumptions are not provided, it is hard to say. Certainly no one expects endorsements to reach 130,000 except for the OMB assumptions. But the most significant factor, the projected home appreciation rate, seems much lower than even the miserable rate used last year in the computation.rnrnThere is much more to say but due to space limitations, this is more than enough. rn

  • I heard this morning on CNBC that our president is a millionaire. Maybe his secure future financial position blinds him to the seniors who have financial setbacks and suddenly find themselves with devalued 401ks, equity loss, and stock portfolios plummeting. Unlike Pres. Obama, they do not have the time or physical stamina to rebuild for their futures. And the supposedly caring Congress and President are knocking away some basic props from under them. Brian Montgomery is right. This is a pivotal year for reverse mortgages, just as it is pivotal for the senior population in general. The question is (and I think we in a senior sensitive industry already know) which way is the year pivoting?

  • I have a difficult time understanding how a program that has been collecting a 2% upfront MIP and a .5% MIP over the last 20 years with a government stated loss rate of less than .5% can be running a $250 million shortfall. Is it because we are matching todays revenues (current MIP’s) with today’s outflows? Is this really appropriate? While I realize it is typical government practice (ie; our failing Social Security system), is it fair to further curtail benefits to our seniors due to the shortsightedness of our elected officials and highly paid government administrators and regulators?

  • GeorgeM,rnrnYour arguments might have been reasonable 19 months ago but they are now very dated. They stem from a misunderstanding about the budget and what the HECM subsidy request represents. 19 months similar arguments and questions were raised by several industry leaders here on RMD. To help explain the situation, the $250 subsidy is properly called a positive credit subsidy.rnrnApproximately 90% of all HECMs are outstanding. Are there sufficient cumulative net revenues to pay for future losses on all of these HECMs? What about the net costs to HUD for carrying assigned HECMs? If the interest costs to carry assigned HECMs are accruing interest at 5% but are earning less than 2%, that loss is real but generally is not discussed. Then there are the allocated costs of running the HECM program such as salaries and other HUD costs.rnrnLast year the HECM actuarial report showed that the ACTUARIES were projecting that the HECM loans outstanding would eventually result in an overall profit. Individuals in HUD who deal with this are now stating that with the continuing slide in home values they are expecting the report this year to be less positive. But that is the actuarial report which is nothing more than projections (based on what the actuaries consider reasonable assumptions) regarding the pool of HECMs outstanding as of the year end of the fiscal year being reported on.rnrnThe $250 million in question has absolutely nothing to do with HECMs currently outstanding or the HECMs which will be endorsed in the next 13 calendar days. It is the projected net negative cash flow that the White House Office of Management and Budget (u201cOMBu201d) determined will result from those HECMs which will be endorsed in the new fiscal year which starts in less than 2 weeks based on several significant assumptions. rnrnOne of those assumptions is the PLF tables which will be used next year. Another is the number of HECMs which will be endorsed in that fiscal year. Yet another is the MIP rates. And probably the most important of all is the estimated home appreciation rate which is used in these computations; if it were 10%, no subsidy would be required.rnrnIt is OMB which has determined the $250 million. Some believe that if the MIP rates and PLFs which applied to HECMs endorsed on 9/30/2009 were reflected in the current subsidy computation, the positive credit subsidy would be $1.7 billion. Why it is only $250 million is because the PLFs are lower by 11%-15% and the annual rate of ongoing MIP is 1.25% rather than 0.5%rnrnAre the assumptions reflected in the OMB calculation reasonable? Since the assumptions are not provided, it is hard to say. Certainly no one expects endorsements to reach 130,000 except for the OMB assumptions. But the most significant factor, the projected home appreciation rate, seems much lower than even the miserable rate used last year in the computation.rnrnThere is much more to say but due to space limitations, this is more than enough. rn

  • I heard this morning on CNBC that our president is a millionaire. Maybe his secure future financial position blinds him to the seniors who have financial setbacks and suddenly find themselves with devalued 401ks, equity loss, and stock portfolios plummeting. Unlike Pres. Obama, they do not have the time or physical stamina to rebuild for their futures. And the supposedly caring Congress and President are knocking away some basic props from under them. Brian Montgomery is right. This is a pivotal year for reverse mortgages, just as it is pivotal for the senior population in general. The question is (and I think we in a senior sensitive industry already know) which way is the year pivoting?

  • I have a difficult time understanding how a program that has been collecting a 2% upfront MIP and a .5% MIP over the last 20 years with a government stated loss rate of less than .5% can be running a $250 million shortfall. Is it because we are matching todays revenues (current MIP’s) with today’s outflows? Is this really appropriate? While I realize it is typical government practice (ie; our failing Social Security system), is it fair to further curtail benefits to our seniors due to the shortsightedness of our elected officials and highly paid government administrators and regulators?

  • I have a difficult time understanding how a program that has been collecting a 2% upfront MIP and a .5% MIP over the last 20 years with a government stated loss rate of less than .5% can be running a $250 million shortfall. Is it because we are matching todays revenues (current MIP’s) with today’s outflows? Is this really appropriate? While I realize it is typical government practice (ie; our failing Social Security system), is it fair to further curtail benefits to our seniors due to the shortsightedness of our elected officials and highly paid government administrators and regulators?

  • I heard this morning on CNBC that our president is a millionaire. Maybe his secure future financial position blinds him to the seniors who have financial setbacks and suddenly find themselves with devalued 401ks, equity loss, and stock portfolios plummeting. Unlike Pres. Obama, they do not have the time or physical stamina to rebuild for their futures. And the supposedly caring Congress and President are knocking away some basic props from under them. Brian Montgomery is right. This is a pivotal year for reverse mortgages, just as it is pivotal for the senior population in general. The question is (and I think we in a senior sensitive industry already know) which way is the year pivoting?

  • GeorgeM,rnrnYour arguments might have been reasonable 19 months ago but they are now very dated. They stem from a misunderstanding about the budget and what the HECM subsidy request represents. 19 months similar arguments and questions were raised by several industry leaders here on RMD. To help explain the situation, the $250 subsidy is properly called a positive credit subsidy.rnrnApproximately 90% of all HECMs are outstanding. Are there sufficient cumulative net revenues to pay for future losses on all of these HECMs? What about the net costs to HUD for carrying assigned HECMs? If the interest costs to carry assigned HECMs are accruing interest at 5% but are earning less than 2%, that loss is real but generally is not discussed. Then there are the allocated costs of running the HECM program such as salaries and other HUD costs.rnrnLast year the HECM actuarial report showed that the ACTUARIES were projecting that the HECM loans outstanding would eventually result in an overall profit. Individuals in HUD who deal with this are now stating that with the continuing slide in home values they are expecting the report this year to be less positive. But that is the actuarial report which is nothing more than projections (based on what the actuaries consider reasonable assumptions) regarding the pool of HECMs outstanding as of the year end of the fiscal year being reported on.rnrnThe $250 million in question has absolutely nothing to do with HECMs currently outstanding or the HECMs which will be endorsed in the next 13 calendar days. It is the projected net negative cash flow that the White House Office of Management and Budget (u201cOMBu201d) determined will result from those HECMs which will be endorsed in the new fiscal year which starts in less than 2 weeks based on several significant assumptions. rnrnOne of those assumptions is the PLF tables which will be used next year. Another is the number of HECMs which will be endorsed in that fiscal year. Yet another is the MIP rates. And probably the most important of all is the estimated home appreciation rate which is used in these computations; if it were 10%, no subsidy would be required.rnrnIt is OMB which has determined the $250 million. Some believe that if the MIP rates and PLFs which applied to HECMs endorsed on 9/30/2009 were reflected in the current subsidy computation, the positive credit subsidy would be $1.7 billion. Why it is only $250 million is because the PLFs are lower by 11%-15% and the annual rate of ongoing MIP is 1.25% rather than 0.5%rnrnAre the assumptions reflected in the OMB calculation reasonable? Since the assumptions are not provided, it is hard to say. Certainly no one expects endorsements to reach 130,000 except for the OMB assumptions. But the most significant factor, the projected home appreciation rate, seems much lower than even the miserable rate used last year in the computation.rnrnThere is much more to say but due to space limitations, this is more than enough. rn

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